ECB's Asmussen warns against unilateral forex moves

Published January 26, 2013

Reuters

FRANKFURT – European Central Bank Executive Board member Joerg Asmussen called for international cooperation to address the current debate about competitive currency devaluation, saying central banks are not the ones to solve structural problems.

Policymakers in advanced countries, particularly Japan and the United States, have been acting aggressively to reflate their economies, which has the effect of weakening their currencies.

Central bankers and politicians have warned against the risk of competitive devaluations and Asmussen said the issue was best tackled in international groupings.

"We have well-established fora of economic governance like the G7 or the G20 and we should use them," he told the Sunday edition of Greek newspaper Kathimerini in an interview.

"We should not fall back to a situation where everyone is looking after his own interests," Asmussen said, adding that when the underlying problems were structural, asking the central bank to do more would not help.

"The mere appearance of political dominance threatens to undermine market confidence," he said.

Asmussen said he was "clearly against" a higher inflation target for the ECB, because merely debating one could upset inflation expectations. The bank has a mandate to pursue price stability, defined as an inflation rate of just below 2 percent.

He said there was no room for complacency, even though the ECB's new bond purchase program, which he called a game-changer, has taken some of the heat out of the euro zone crisis.

"The biggest risk this year for the euro area is doing nothing. The reduction of the pressure that came from elevated spreads may lead to complacency regarding reforms. This would be wrong. This is a year to show perseverance, to stay the course, in all member-countries," Asmussen said.

He said Greece was in the final stretch of its fiscal adjustment and could cut debt to sustainable levels without further debt relief if it carried out reforms prescribed by foreign lenders.

"The marathon was invented in Greece. As a country, you have now been through two-thirds of it, but everyone knows the last third is the hardest part," Asmussen said.

(Reporting by Eva Kuehnen in Frankfurt and Renee Maltezou in Athens; editing by Mark Trevelyan)